Burroughs to Sell Part of Memorex : Group to Pay $550 Million; Move Will Ease Debt Load
Burroughs is selling a sizable portion of Memorex, the struggling disk drive and computer peripherals business it bought five years ago, to an international group of Memorex executives and New York financier Eli S. Jacobs for $550 million, the company said Thursday.
The sale fits with Burroughs’ stated plan to sell at least $1.5 billion in assets to help pay the debt it incurred in its $4.8-billion acquisition of Sperry earlier this year. The Memorex price will be paid “largely in cash,” the company said, with Burroughs taking an unspecified amount of preferred stock in the new company.
Analysts generally reacted positively to the announcement, some indicating that the price was better than expected. Burroughs purchased Memorex in 1981 for $117 million and has made large cash infusions to support heavy research and development costs, primarily associated with the large disk drive business. Burroughs is keeping that business for its computer systems and eventually for Sperry’s.
Memorex lost money in 1985, and analysts say it is nearing break-even this year and was headed for profitability in 1987. The slowness of the large disk drive operations to match International Business Machines product improvements has been blamed for the subsidiary’s losses. A spokesman for Memorex said the divisions being bought by the new company are profitable.
The new company will be headed by Giorgio Ronchi, an international marketing executive who has been at Memorex 17 years. The new company is buying the computer media products business, which makes flexible disks, computer tape and tape cartridges. It also will continue to make, sell and service IBM-compatible communications terminals. Additionally, it will continue to sell and service large disk drives (information storage devices for large computers). Those businesses add up to about $900 million in annual sales.
The new company will retain the Memorex name and move its headquarters to London, according to a spokeswoman for the group of buyers. Of Memorex’s current 9,000 employees, about 6,000 are in businesses being sold to the new company. Burroughs will produce the large disk drives for itself and for sale by the new company into the IBM-compatible market. Burroughs will retain Memorex’s current headquarters site in Santa Clara, Calif. Of the company’s 3,600 employees in California, about 2,000 will remain with Burroughs.
A spokeswoman for Jacobs would not comment on what role, if any, the investor planned to take in the new company.
Analysts expect Burroughs to sell Sperry’s aerospace and marine group by the end of this year, fetching more than $700 million.
